Evaluating Utility Procured Electric Energy Storage Resources: A Perspective for State Electric Utility Regulators

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1 SANDIA REPORT SAND Unlimited Release Printed November 2012 Evaluating Utility Procured Electric Energy Storage Resources: A Perspective for State Electric Utility Regulators A Study for the DOE Energy Storage Systems Program Dhruv Bhatnagar and Verne Loose Prepared by Sandia National Laboratories Albuquerque, New Mexico and Livermore, California Sandia National Laboratories is a multi-program laboratory managed and operated by Sandia Corporation, a wholly owned subsidiary of Lockheed Martin Corporation, for the U.S. Department of Energy's National Nuclear Security Administration under contract DE-AC04-94AL Approved for public release; further dissemination unlimited.

2 Issued by Sandia National Laboratories, operated for the United States Department of Energy by Sandia Corporation. NOTICE: This report was prepared as an account of work sponsored by an agency of the United States Government. Neither the United States Government, nor any agency thereof, nor any of their employees, nor any of their contractors, subcontractors, or their employees, make any warranty, express or implied, or assume any legal liability or responsibility for the accuracy, completeness, or usefulness of any information, apparatus, product, or process disclosed, or represent that its use would not infringe privately owned rights. Reference herein to any specific commercial product, process, or service by trade name, trademark, manufacturer, or otherwise, does not necessarily constitute or imply its endorsement, recommendation, or favoring by the United States Government, any agency thereof, or any of their contractors or subcontractors. The views and opinions expressed herein do not necessarily state or reflect those of the United States Government, any agency thereof, or any of their contractors. Printed in the United States of America. This report has been reproduced directly from the best available copy. Available to DOE and DOE contractors from U.S. Department of Energy Office of Scientific and Technical Information P.O. Box 62 Oak Ridge, TN Telephone: (865) Facsimile: (865) Online ordering: Available to the public from U.S. Department of Commerce National Technical Information Service 5285 Port Royal Rd. Springfield, VA Telephone: (800) Facsimile: (703) Online order: 2

3 SAND Unlimited Release Printed November 2012 Evaluating Utility Procured Electric Energy Storage Resources: A Perspective for State Electric Utility Regulators A Study for the DOE Energy Storage Systems Program Dhruv Bhatnagar and Verne Loose Energy Storage & Transmission Analysis Sandia National Laboratories P.O. Box 5800 Albuquerque, New Mexico MS1140 Abstract This report provides a perspective on issues pertaining to the deployment of utility procured electrical energy storage resources. The intended audience includes state electric utility regulatory authorities, their staffs and the planning personnel in the utilities they regulate. Its purpose is to inform the audience about the potential opportunities for energy storage technologies to play a greater role in the evolving electricity marketplace and grid. The surge of investments in renewable energy (RE) during the last decade, particularly wind and solar energy has stimulated interest in energy storage. These technologies have the capability to balance the variability inherent in many RE technologies. The state public utility commissions (PUC) responsibility for regulating utilities leads to a focus on aspects of grid operations and expansion including: voltage and frequency regulation; distributed generation; renewable energy, particularly the administration of Renewable Portfolio Standards (RPS) mandates; and grid capital investment. Energy storage systems can contribute in each of these areas. Given the potential of energy storage technologies to perform these functions, their access to the regulatory process must be improved together with removal of barriers and appropriate and consistent cost benefit analysis methodologies so that they are routinely included in the suite of options considered for providing key grid services. The solutions that deliver the services cost effectively will likely be the solutions put forth by utilities and approved by utility commissions. Two storage system case studies are presented as a means to illustrate some of the fundamental valuation principles particularly pertinent to energy storage systems. 3

4 Acknowledgments The authors gratefully acknowledge the support of the U. S. Department of Energy, Office of Electricity, Dr. Imre Gyuk, Director, Storage Technology Program. We are also grateful for the essential input and support of an Advisory Committee comprised of the following individuals: Mr. Joseph Desmond, Senior Vice President, BrightSource, Inc. Ms. Eva L. Gardow, Senior Project Manager, FirstEnergy Dr. Ali Nourai, Ph.D., Executive Consultant, DNV-KEMA, Inc. Dr. J. Arnold Quinn, Ph.D., Director of Economic and Technical Analysis, Federal Energy Regulatory Commission Mr. Benjamin Rogers, President and COO, Grid Storage Technologies Mr. Carl J. Weinberg, Principal, Weinberg Associates James I. Eyre and Susan Horgan of Distributed Utility Associates contributed to early versions of this report. Ross Guttromson, Abbas Akhil, Ray Byrne, and Mark Ehlen of Sandia National Laboratories provided invaluable comments on a recent draft of this report. Jacquelynne Hernandez of Sandia National Laboratories provided background research on jurisdictional issues. Ben Kaun at the Electric Power Research Institute provided review on a late draft. Aileen Currier of Sandia National Laboratories provided a final review. The authors are grateful to all for their contributions. A number of other unnamed individuals provided constructive comment and critique of earlier versions of this report for which we are also grateful. Finally, the authors accept responsibility for any errors of omission and commission remaining in the report. 4

5 Contents Acronyms... 9 Executive Summary Introduction and Plan of the Report Introduction Organization of the Report Related Sandia Energy Storage Guidebooks and Reports Utility procured Electric Energy Storage (EES) Energy Storage Sources Energy Storage Technologies Defined Grid Uses for Storage Technologies Factors Affecting Demand for EES Transmission Constraints and Congestion Increasing Variable Renewable Energy Generation Operational Advantages of EES Cost-reducing Technology Development for EES Environmental Advantages of EES Factors Affecting the Future Grid Privately Owned EES for Regulated Utilities Review of Current and Recent PUC Dockets Involving EES Synopsis of Investment Recovery Requests Synopsis of Cases Involving Requests for Investment Recovery through Rate-Base Addition Synopsis of Hearing Record Discussion Regarding the Definition of Energy Storage Synopsis of Hearing Record Discussion Regarding Why Energy Storage is Necessary Synopsis of Hearing Record Discussion of the Cost-Effectiveness of Energy Storage Synopsis of Hearing Record Discussion of the Utilization & Operation of Storage Synopsis of Hearing Record Discussion of Funding Issues Synopsis of Hearing Record Discussion of Markets Synopsis of Hearing Record Discussion of Mandates and Incentives Synopsis of Hearing Record Discussion on Evaluation Metrics Summary of Challenges and Regulatory Responses Storage-Specific Challenges and Responses Uncertainty Regarding Jurisdiction of FERC and State PUCs over Storage Existing Cost-Effectiveness Tests Do Not Accommodate Storage Well The Challenge of Mandates and Incentives A Process for Evaluating Services of EES Systems Introduction EES Evaluation Approaches Generic Studies Approach Down Scoping Approach Localized Economic Simulation Models Approach Production Cost Modeling Approach

6 4.3 Elements of A Regulated Utility Rate Base Submission The Down-Scoping Process: Identifying Grid Location-Specific EES Functional Uses Identification of Benefits or Revenue Streams Application of a Benefit-Cost Evaluation of Alternatives Externalities Associated with Use of EES Technologies Concluding Observations References Appendix Electricity Storage Technology Physics of Electricity Storage Electricity Storage Plant Primary Rating Criteria: Energy and Power Electricity Storage Types Pumped Hydroelectric Storage Compressed Air Energy Storage Flywheel Energy Storage Electrochemical Batteries Flow Batteries Summary Statement on EES Technology Characteristics Other Engineering Features of EES Systems Average EES Device Costs Deployment of Electric Energy Storage Current Status Conventional and Pumped Storage Hydro Other Storage Technologies American Recovery and Reinvestment Act Projects (ARRA) Case Studies: Energy Storage Proposals Case Study 1: Renewable Energy Shifting and Firming Functional Uses Required Technology Characteristics Discounted Cash Flow Analysis Assumptions Discounted Cash Flow Analysis Calculations Discounted Cash Flow Analysis Results and Summary Case Study 2: Distributed Generation Smoothing and Integration Functional Uses Required Technology Characteristics Discounted Cash Flow Analysis Assumptions Discounted Cash Flow Analysis Calculations Discounted Cash Flow Analysis Results and Summary

7 Figures Figure 1: EES technology characteristics arrayed with time Figure 2: Benefit-cost analysis using the concept of opportunity cost Tables Table 1: Functional uses for EES systems and their associated value metrics Table 2: Value estimates used in calculations for case study Table 3: EES and RE system performance characteristics for case study Table 4: Benefit value specifications for annual and one-time bases for case study Table 5: Performance and economic assumptions used in NPV calculations for case study Table 6: DCF Analysis: EES revenues, costs, and NPV by year for case study Table 7: Value estimates used in calculations for case study Table 8: EES and RE system performance characteristics for case study Table 9: Benefit value specifications for annual and one-time bases for case study Table 10: Performance and economic assumptions used in NPV calculations for case study Table 11: EES revenues, costs, and NPV by year for case study

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9 Acronyms AC A-CAES BPU CAES CPP CT DC DER DG DOE DR EV EES ESS FERC GT&D GW GWh HEV ILR IOU IRR kw kwh LMP LESR MW MWh NERC NOI NOPR PHEV alternating current adiabatic CAES Board of Public Utilities compressed air energy storage critical peak pricing combustion turbine, usually simple cycle (Brayton cycle) direct current distributed energy resource distributed generation Department of Energy demand response electric vehicles electric energy storage energy storage systems Federal Energy Regulatory Commission generation, transmission and distribution gigawatt (1,000,000,000 watts) gigawatt hour (1,000,000,000 watt-hours) hybrid electric vehicles interruptible load for reliability investor-owned utility internal rate of return kilowatt (1,000 watts) kilowatt-hour (1,000 watt-hours) locational marginal price limited energy storage resource megawatt (1,000,000 watts) megawatt hour North American Electric Reliability Corporation Notice of inquiry Notice of Proposed Ruling (FERC) plug-in hybrid electric vehicles 9

10 PPA PQ PSC PUC PV RE RFI RFP SMES SNL T&D TES TOU UPS power purchase agreement power quality Public Service Commission Public Utilities Commission photovoltaic renewable energy request for information request for proposal superconducting magnetic energy storage Sandia National Laboratories transmission and distribution thermal energy storage time-of-use (usually TOU electricity rate) uninterruptable power supply 10

11 Executive Summary This report presents what the authors hope the reader will regard as a fresh perspective on electrical energy storage resources. This perspective is for use in the state utility regulatory environment wherein regulatory commissions may soon be faced with the need to evaluate requests for recovery of investments in electrical energy storage devices. Reliance is placed on the substantial quantity of recent descriptive presentations of the technologies considered as electrical energy storage (EES) systems, results of engineering research and development, and analysis of the economics of acquisition and operation of EES in both market and state-regulated environments. Many of the engineering and economic presentations have attempted to gauge the relative economics of these systems and present generic assessments. As is characteristic of emerging technologies, EES systems have a challenge to present a strong business case in comparison with competing devices, such as generation, transmission, demand response and other technologies that can provide similar services, in use on the grid. While a wide array of potential benefits are attributed to energy storage devices, other technologies can also provide these services leaving the relative economics as a deciding criterion. With ongoing research, costs for energy storage technologies are likely to decrease in the near future, and with increasing renewables penetration, their value should increase, leading to an improved economic case. Thus, energy storage systems may be on the cusp of emerging from a period of uncertainty and marginal economics to providing available capacity and energy economically. Major companies are making proposals to invest in large, MW-sized projects to provide reserves. 1 With some speculation, a deployment strategy of focusing on a few (one in the case cited) revenue streams can be inferred from this development. This report presents an overview of grid-scale electrical energy storage technologies, those deployed at a scale appropriate for providing transmission or distribution grid service as opposed to those providing behind the customer meter service. Energy storage technologies are defined and factors affecting the current and future demand for grid storage are identified and discussed. Though energy storage demonstration projects increase experience and knowledge of energy storage systems and can validate their performance capabilities, in regulated environments storage systems must prove to be economically competitive. Thus, this report presents little discussion of these demonstration projects. The status of the state regulated utility environment for energy storage system deployment is discussed to provide state utility regulators an understanding of how energy storage systems can be considered an electric grid asset. A significant contribution of this report is a review of many of the state utility commission dockets under active or closed adjudication in various jurisdictions around the United States. From this review, we have extracted the key concerns and challenges that utilities, interveners, and commission officials have raised with respect to storage: Operational definition and classification EES defies classification as a generation, transmission, or distribution asset; Challenges to quantifying value, which leads to difficulty in proving cost-effectiveness; attribution of multiple benefits complicates valuation; Limited operational experience (such as, controls interoperability and grid interconnection) leads to uncertainty regarding value contribution of benefits; Institutional inertia inhibits learning-bydoing; Uncertainty regarding jurisdiction of FERC and State PUCs over storage; 1 See: Newsday: 400 megawatt battery proposed for LIPA. AES Energy Storage. 11

12 Mandates and incentives might encourage more deployment but interrupt the process of market valuation of the technologies. Each of these issues is discussed and possible means to resolve the issues and concerns presented. A significant portion of the report is also devoted to identifying and discussing the methods for evaluating energy storage devices. Several options range in time and resource costs. A suggested approach and methodology to evaluate the economics of energy storage devices follows. Two detailed case studies present, discuss, and apply the valuation method. Much of the literature about energy storage systems has sought to portray them as unique and endowed with a wide array of potential benefits. This report has attempted to cut through some of this complexity in order to emphasize the essence of energy storage systems. It should help to make the valuation of energy storage systems more straightforward from a technological, economic, and regulatory standpoint. The one feature that makes these systems unique their ability to store energy also puts them in direct economic competition with load, or more properly, demand response. Not only do storage technologies face competition from every technology on the supply side but also competition from those on the demand side. Thus, the main present challenges to increased deployment have to do with economic comparisons can energy storage systems deliver their services at lower cost than competing technologies? Public utility commissioners faced with decisions regarding such technology deployments will ultimately make their decisions based on protecting the interests of their constituents: do these technologies help to protect electricity consumers from unnecessary increases in electric rates? Trends in the industry may help to further the deployment of energy storage systems. Clearly increased penetration of renewables is one such trend. The increased peakiness of load and declining inertia on the system may also provide opportunities. Furthermore, the relatively small scale of most energy storage technologies (pumped hydro and CAES excepted) should provide increased opportunities for deployment. A deployment strategy emphasizing the appropriate technology and scale to provide distribution system and near-to-consumer deployment can be cost-effective, and provide grid support indirectly, while at the same time, buy time for further (cost-reducing) technology development of larger energy storage technologies. The following are among the most important takeaways from this analysis: Electric Energy Storage systems (EES) have the potential to play a major role in the current and future electricity grid; EES systems have a unique feature in their ability to store energy; they are also able to change their energy output extremely rapidly as compared with conventional generators; The value contributed by EES is judged by the cost of the next best alternative means of providing the service; Vertically integrated utilities may have an advantage in their ability to internalize all of the benefits available from energy storage technologies. This cannot be conclusively demonstrated and may depend on organizational structure and other business characteristics. Unfortunately, these benefits are valued at cost (of the next best alternative) as opposed to being based on revenues derived from market transactions as they would be in a market environment; Asset classification issues can be clarified by viewing the systems from the point of view of the services they perform, rather than their inherent engineering characteristics; The regulatory environment may make it difficult for utilities to propose such systems; regulatory commissions may need to work with utilities to facilitate deployment; establishing a framework 12

13 for evaluating EES services, as provided in this report, may help increase deployment by aiding utilities in proposing, and regulatory commissions in evaluating, energy storage systems; Phase-in tariffs or other incentives might provide the necessary financial boost to induce utilities to invest in EES in the absence of carbon pricing. The Appendix discusses pertinent engineering and physical characteristics of energy storage devices. It also presents the detailed benefit-cost evaluation of the selected ESS case studies. 13

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15 1.1 Introduction 1 Introduction and Plan of the Report This report provides a perspective on issues pertaining to the deployment of utility procured electrical energy storage (EES) for state electric utility regulatory authorities, their staffs and planning personnel within the utilities they regulate. 2 Its purpose is to inform this audience about the potential opportunities for energy storage technologies to play a greater role in the evolving electricity marketplace and electricity grid. 3 The surge of investments in renewable energy (RE) during the last decade, particularly wind and solar has stimulated renewed interest in energy storage and the role it can play in managing the electricity transmission grid. Energy storage has the capability to mitigate the inherent variability of RE technologies. It can also provide a variety of different grid services. Given the potential of energy storage technologies to perform these functions, their access to the regulatory process can be improved so that they are routinely included in the suite of options considered for providing necessary grid services. 1.2 Organization of the Report The report is organized as follows: Section 2 introduces utility procured electric energy storage, functional uses (applications), factors affecting demand or load, and factors affecting future grid development. An extensive review of the extant rate base requests currently or previously active in the U.S in Section 3 follows. Identified from this review are key issues and concerns raised by utility personnel, state regulators, and interveners. Section 4 outlines the key elements of an ideal rate base investment recovery request. Section 5 presents concluding observations. An appendix describes energy storage technologies in more detail to provide the reader with essential information to understand the technologies, their features and functional uses, and two case studies implementing the analysis process presented in section Related Sandia Energy Storage Guidebooks and Reports Sandia will publish three energy storage guidebooks in These are: 1) This regulatory handbook: This handbook is intended for the state regulatory audience across the United States, particularly in those states that have limited or no experience with energy storage technologies. 2) DOE/EPRI 2012 Electricity Storage Handbook in collaboration with NRECA: This handbook is intended for utilities and system developers. It provides a comprehensive discussion of energy storage technologies, a cost database of these technologies, a discussion of the regulatory and market environments, installation and deployment processes for energy storage systems and supporting documentation including sample requests for proposals (RFPs) for storage systems and sample power purchase agreements. 2 The topic of this paper relates to devices that utilities (load serving entities, distribution utilities, and transmission utilities) would install on their grid. Many storage devices are placed on the consumers side of the meter often for power quality reasons. These devices, while extremely effective, are outside the scope of this effort. 3 We use the acronym EES to refer to electric energy storage as differentiated from natural gas and pumped hydroelectric, both excluded from consideration in this report. Electrical energy storage (EES), energy storage, and storage technologies will be used interchangeably. Each of these refers to electrical energy storage technologies or systems. 15

16 3) Methodology to Determine the Technical Performance and Value Proposition for Grid-Scale Energy Storage Systems: This report is intended for utilities, developers, and manufacturers to help guide a performance and economic evaluation process for the ARRA (American Reinvestment and Recovery Act) funded energy storage projects. 4 The evaluation processes presented is applicable for utilities, developers, and regulators when considering other installations in both market and non-market territories. Sandia intends each of these guidebooks for different audiences, but as a whole, they provide a comprehensive overview of the energy storage landscape from the perspectives of regulators, utilities, developers, and manufactures. Users of these guidebooks should focus their intention on the directly applicable report, but keep in mind that the others have information that may provide further insight into the tools and processes that are useful in evaluating these technologies from an economic and performance perspective, the regulatory and market environments that users of the technologies will navigate and a comprehensive overview of technology capabilities and characteristics. Sandia intends these reports to provide energy storage a fair consideration and evaluation relative to alternative technologies when power system stakeholders address grid requirements. 4 See 16

17 2 Utility procured Electric Energy Storage (EES) 2.1 Energy Storage Sources Energy storage systems that produce useful work have been utilized for millennia. Dams and diversions of river courses to create hydraulic head for mechanical energy production have been in use for thousands of years (Tiwari & Ghosal, 2005, p. 285). Modern hydro facilities now produce electricity as well as other benefits. Conventional hydroelectricity (CH) and pumped storage hydroelectricity (PSH) represented about 5.9% of the 2008 net generation of electricity produced within the contiguous forty-eight states. In terms of net summer installed generation capacity, hydroelectric facilities comprise about 9.9%. 5 (Loose, 2011) The North American electricity grid, like all other electricity grids, has been built to meet peak load, which is typically spread over a few hours in the early morning and the early evening during the peak seasons. Peak seasons in North America are typically either summer or winter depending on a location s latitude. During all other hours of the day, this unused capacity can be viewed as a form of storage (NRRI, 2011). 6 Leveling the load over the daily and seasonal cycle remains an opportunity to reduce system costs. Recessions in the late 1990s and from 2007 to 2010 interrupted growth in electricity demand, thereby adding to reserve capacity. Related to the opportunity to shift load from on-peak to off-peak is the opportunity to utilize near-to-realtime demand response to compensate consumers who can adjust their electricity use in response to price signals. This can be seen as yet another form of storage. Mechanisms to implement this type of market participation through retail choice are available in some locations around the country. However, generally speaking, the plans have not, to date, been as enthusiastically received as hoped. Retail choice is likely to be a significant component of balancing demand and supply but consumer friendly technologies, such as technologies in Smart Grid programs, will be instrumental in providing consumers the information needed to adjust consumption patterns. 2.2 Energy Storage Technologies Defined Energy storage systems do not store electricity directly, but rather convert it to another form of energy that is then stored (kinetic, electrochemical, electrostatic, potential, etc.) and when electricity is needed or is more valuable, reconvert it back. Thus, energy storage systems have the unique capability to be both consumers of electricity (during the charging phase) and producers of electricity (during the discharging phase). At present, uses of electrical energy storage (EES) in the utility industry have been limited. Utility-scale EES projects based on storage technologies other than pumped hydroelectric storage have been utilized, though they have not become common. Existing U.S. facilities include one compressed air energy storage (CAES) system, several plants based on lead-acid batteries, a few based on sodium sulfur and lithium-ion batteries and one based on nickel-cadmium batteries. Additionally, one utility scale flywheel facility is in operation and others are planned or in construction. In all, roughly 2.5% of the total electric power 5 Capacity is defined by the U.S. Energy Information Administration as the maximum output, commonly expressed in megawatts (MW), that generating equipment can supply to system load, adjusted for ambient conditions. See: EIA. (2012). Glossary Retrieved February 1, 2012, from 6 Sherman Elliott, Commissioner in the Illinois Commerce Commission makes this point. 17

18 delivered in the United States passes through energy storage, largely pumped hydroelectric facilities. The percentages are larger in Europe and Japan, at 10% and 15%, respectively (EPRI 2003). 7 The most commonly discussed EES technologies have been grouped into electrochemical and nonelectrochemical categories. The former includes the more common lead acid and sodium-sulfur batteries as well as battery technologies such as nickel cadmium, nickel metal hydride, lithium ion, and flow batteries. Non-electrochemical EES technologies include pumped storage hydroelectric, compressed air energy storage, and flywheels. Many papers and reports describe each of the EES technologies in detail. Examples include Sandia (2003, 2005, 2008, and 2010), EPRI (2003, 2004, 2005, and 2010), Gyuk, et al (2005), among others. A complete list generally includes superconducting magnetic energy storage and thermal energy storage. Superconducting magnetic energy storage is currently too expensive to be considered at the grid level. Thermal energy storage has significant potential for deployment, as some forms, such as electric water heaters, are commercial level systems. However, they are largely customer level resources (behind the meter and distributed). Ice storage is another such technology and has been discussed in a PUC case, but again is generally considered a customer side technology. 8 These distrusted technologies can be controlled in aggregate to provide grid-scale bulk services, though this action falls under the purview of demand response technologies and out of the scope of this report. There are also examples of grid level thermal storage technologies. One is a combined heat and power district cooling system in Austin, TX, but it does not provide typical system services, and again could be considered a form of demand response. 9 Solar thermal with molten salt as the storage medium is another grid-scale thermal storage technology. However, it is specific to a single solar thermal generation unit and thus is integrated into a solar thermal plant. It would not be discussed as a separate entity from the solar thermal plant and is thus not discussed here. 2.3 Grid Uses for Storage Technologies In general, the grid uses to which energy storage technologies can be applied or the services they can supply to the grid are identical to those of any generator technology. Thus, energy storage systems have many similarities to the equipment currently found on the electricity grid. The truly unique feature of EES systems is their capability (or necessity) to absorb energy at times when it is desirable from a system or cost perspective. EES systems are the only systems that have this inherent capability to supply and absorb energy. Thus, these systems have the capability to provide capacity, energy, load, and fast ramping to the grid. Their limitation, however, is that they can only provide these grid services for a limited duration determined by the amount of stored energy available and thus are limited energy storage resources (LESRs). All of the applications discussed by Eyer and Corey for example, can be performed by any generator and are not services that ESS systems can uniquely supply (Eyer & Corey, 2010). Thus, whether a utility or grid operator employs energy storage systems depends at least partly, perhaps predominantly, upon the relative economics of energy storage systems versus the alternative technologies that could provide the 7 See Ch. 30 in Reddy, T. B., & Linden, D. (2011). Linden's handbook of batteries (4th ed.). New York: McGraw-Hill. 8 Discussed in the New Jersey Central Power & Light demand response filing before the New Jersey Board of Public Utilities. (NJBPU, 2008) 9 See Austin Energy. District Cooling Services. Site%20Energy%20Systems/districtcooling.htm 18

19 same services. Advocates for storage technologies frequently make the case for the technologies, partly based on the wide range of potential applications (often referred to as benefits) and the degree to which energy storage can provide solutions to emerging concerns in the evolution of the grid. A potential advantage for energy storage technologies, particularly batteries and flywheels, is that they are modular and have the potential to be scaled more appropriately to the use. However, this advantage may come at a cost, as the capital cost per installed kw may be higher due to the smaller scale. 10 Additionally, storage technologies may have an advantage in the effort to reduce emissions of air pollutants from electricity generation, as high emission peaking gas power plant use, as well as the amount of generator ramping, can be reduced. This depends on the energy mix used to charge EES resources. This could embed some average level of emissions in the electricity stored unless wind or solar energy is the primary energy source. 2.4 Factors Affecting Demand for EES The present state of the U.S. economy affects the overall performance of the electricity industry, which is operating well below capacity in line with much of the rest of the economy. It appears that this condition may persist for several years. With excess capacity currently on the system and financial returns to its operation reduced, electricity asset owners are not motivated to increase capacity. The hope is this condition will eventually correct itself and the U.S. economy will get back to business as usual, making a more attractive climate for new capacity investment Transmission Constraints and Congestion The electric transmission infrastructure faces increased challenges. Disagreements about which entities should own and/or pay for new transmission capacity and growing resistance to the siting of new transmission infrastructure for environmental and aesthetic reasons are among the issues. EES systems provide an alternative to building new lines. Storage can be used to increase throughput of existing transmission capacity by reducing congestion and offsetting unhelpful electrical effects, and can reduce the need for new transmission capacity through a constrained portion of the transmission system. This requires that the storage device be located downstream from transmission constraints and that it be charged at night when the transmission system is not heavily loaded. Using storage, more electricity can be transmitted using the same infrastructure and the need for additional transmission capacity is reduced. Outside of congestion and capacity issues, energy storage can also play a role in deferring transmission upgrades for system stability purposes. For example, it may provide voltage support or a fix for an unreliable transmission interconnection Increasing Variable Renewable Energy Generation Variable renewable energy resources, predominantly wind and solar, are expected to provide a growing portion of new capacity additions in the electric industry. EES systems are widely valued as important enablers of variable renewable generation. The nature of variable renewable generation, particularly wind, is such that EES systems can be charged with off-peak (low price) electricity from RE generation so the stored EES energy can be used during peak demand when it has greater value. EES with rapid, accurate response can also offset short-term output variations from wind turbines and passing clouds that affect 10 Fixed infrastructure costs may lead to higher per kw costs for a smaller system even though battery costs would presumably remain constant, 19

20 solar generation. In addition, EES may enable the reduction in size of interconnection facilities and T&D network upgrades required to interconnect wind and solar systems to the grid Operational Advantages of EES EES systems are unique in that they can be useful both in the typical daily and diurnal energy cycles of peak and off-peak. During peak periods charged EES can provide imbalance energy and ancillary services that help moderate peaks. During off-peak periods, they could absorb energy from the system. These features can prevent the operationally expensive cycling of plants and curtailment of wind and solar generation and thereby improve overall system performance Cost-reducing Technology Development for EES Increasing development of advanced energy storage technologies primarily of modular technologies follows from advances in materials science, nanotechnology, power electronics, communication and control, and manufacturing, which combine to bring down cost. Deployment of EES, particularly in rapidly expanding areas of Asia and Europe, will expand information and experience with EES technologies, thus lowering costs. The increasing manufacturing volume of electric vehicles (EVs) and partial hybrid electric vehicles (PHEVs) is also expected to have a beneficial effect on the stationary energy storage market by driving down the cost of the battery component of a Li-based EES Environmental Advantages of EES At present conventional generators (coal and natural gas) provide most of the reserve capability needed by the grid. These units perform this service by operating below their optimal operating points and cycling to meet reserve requirements, which results in less efficient operation using more fuel and creating more emissions. If a greater portion of reserves were to be provided by EES, the conventional generators on the system could operate more efficiently, allowing them to provide energy instead of reserve capacity, leading to the system being operated in a more environmentally friendly manner. If the EES system were charged using renewables, there would be a further reduction in emissions as no emissions would be generated to meet reserve requirements. New Environmental Protection Agency (EPA) regulations may lead to a shutdown of coal generators reducing system capacity. This may be a driver for further EES deployment. 20

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